If the measure passes the House and Senate, the U.S. government will avoid a potentially disastrous default that the Treasury says could otherwise occur as early as Tuesday.

But economists said it remains doubtful that major ratings agencies — Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings — will allow the country’s AAA rating to remain in place.

“The deal does not put the U.S. fiscal position on a sustainable path and will not prevent the U.S. from losing its AAA credit rating,” said Paul Dales, senior U.S. economist at Capital Economics. “The only question is whether S&P and the other rating agencies pull the trigger this week or wait a little longer.”

So far, the agencies have remained mostly quiet. But Standard & Poor’s previously had taken the hardest line and remains the most unlikely to give Washington a pass, according to economists.

“Overall, our first impression is that the agreement by itself is unlikely to be sufficient to cause S&P to remove the U.S. from being on ratings watch for possible downgrade,” wrote Julian Callow and Frank Engels at Barclays Capital in London in a note.

Allan von Mehren, chief analyst at Danske Bank in Copenhagen, said the figures, while in line with expectations, “may not be enough to avoid a downgrade, and we still see a higher than 50% probability that this will happen in coming months.”

S&P last week signaled that it would require a deficit-reduction agreement of around $4 trillion, along with convincing signs that it could be enforced, to affirm its AAA rating on the United States. A lower rating could raise the government’s borrowing costs.

The debt agreement would lead to a $2.4 trillion rise in the debt ceiling in two stages, while making just shy of $1 trillion in spending cuts over 10 years. A special panel of lawmakers must find a further $1.5 trillion of deficit cuts through reforms of entitlement spending and the tax code. Read the text of Obama’s remarks on the debt-ceiling deal.

If they fail, automatic spending cuts would kick in.

The agreement initially triggered a global relief rally, with Asian and European stock indexes rising and Wall Street posting a triple-digit rally.

The dollar index
DXY, +0.38%
which measures the U.S. unit against a basket of major rivals, rose 1% to 74.452. The greenback gave up early gains versus the safe-haven Japanese yen
USDJPY, +0.02%
to flirt with its all-time low near ¥76.30.

Treasury prices erased early losses, pushing the benchmark 10-year Treasury note yield
TMUBMUSD10Y, +0.72%
to its lowest level since November in the wake of the weak manufacturing-activity data. Yields move in the opposite direction to prices. Read more in Bond Report.

The threat of default appeared to have had little effect on Treasurys over the course of July, with yields declining.

“Investors seem to have assumed a deal would be done and have focused instead on the mostly soft economic data, culminating in Friday’s grim gross domestic product report,” said Ian Shepherdson, U.S. economist at High Frequency Economics in Valhalla, N.Y.

The Barclays economists said that the latest plan represents progress, but falls well short of a “game-changing breakthrough” and will keep alive the possibility of a near-term downgrade.

Weak economic data aren’t helping.

Friday’s dismal round of U.S. GDP figures led Barclays to cut its forecast for U.S. economic growth this year from 2.5% to 1.7%, and from 3.4% to 2.5% in 2012.

“As a consequence, all of the putative fiscal savings could effectively be wiped out if U.S. GDP … continues to be significantly weaker than is assumed in government fiscal-baseline projections,” Barclays added.

Steven Barrow, currency and fixed-income strategist at Standard Bank, said the United States should be downgraded and is likely to see its rating cut as early as this week.

But it’s not inconceivable that ratings firms could cut Washington a break, Barrow cautioned in a research note, saying that the raters have been accused in the past of showing a favorable U.S. bias.

“Agencies might also want to delay any downgrade as well in order to see what sort of cuts come about in the future,” he suggested. As a result, “it is certainly not inconceivable that the agencies let the U.S. off the hook for now, and we would not be totally surprised if this were to happen.”

Rates strategists at Lloyds Bank in London agreed that a downgrade remained a possibility, with Washington emulating Europe’s approach to the euro-zone’s sovereign debt crisis by focusing on “short-term solutions with temporary fixes,” they wrote in a note to clients.

A downgrade, however, would be unlikely to trigger a knee-jerk selloff in U.S. government debt, they said.

“The lack of a viable alternative that is as liquid as the U.S. debt will avoid any mass exodus from U.S. Treasurys,” according to Lloyds, although worries about the lack of a credible deficit-reduction plan could lead to shifts in investor behavior over the longer term that would make for a bearishly inspired steepening of the U.S. yield curve.

Meanwhile, there is still the threat that the crisis isn’t over, with lawmakers yet to approve the latest proposal after weeks of fractious and bitter negotiations.

“If the House rebels against the Senate deal, the markets will presumably take their revenge, with stocks and the dollar hit hardest, but it is difficult to imagine no adverse effect on Treasurys too,” High Frequency’s Shepherdson wrote in a note.

If that occurs, the Treasury Department would have to auction bills to redeem the $91 billion in bills set to expire on Thursday.

While the money would almost certainly be raised, it’s not clear what yield investors would demand, he said.

After that, the key dates for the markets would be the Treasury auctions set for Aug. 9, 10 and 11, Shepherdson continued, with this caveat: “What rate would you want to buy a note from a government with no money?”

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